If you're looking to get into the rental market, 2015 will be another solid year. If you're looking to flip houses or make a significant profit from appreciation, 2015 may not be your year. While home prices continue to increase in value, they are doing so at a much slower rate than over the past two years. From October 2012 to October 2013, the national average home price appreciated 10.6%. From October 2013 to 2014, the increase slowed to 4%.
With most home values now above water and consumers viewing the recession recovery as more or less complete, more sellers are going to be entering the market in 2015. The increase in inventory will keep a lid on prices. Additionally, income growth remains well below the increase in home prices at 1.8%. Want-to-be buyers that couldn't afford to buy last year or this year still won't be able to afford to buy in 2015. This will further keep prices slowed along with the strong probability that interest rates will be going higher.
As we all know, there are many dynamics that drive real estate markets. Some are global and national while many are completely local. Although, residential real estate prices are likely to remain stable in 2015, there will be new buyers entering the market. One of the largest groups will be those that had their credit scores damaged by a foreclosure or short sale years ago. That damage is now aging to the point that if they have maintained responsible credit habits, they will soon be able to again qualify for a mortgage. The other large group that will be entering the 2015 market are those that can come up with Fannie Mae and Freddie Mac's lower down payment requirement of 3%.
Still, if you invested over the last several years, you should have seen significant appreciation of your investments since then. You may want to consider selling single-family investments and moving up to multifamily rentals.
The rapid increase in rents over the past couple of years spurred a significant increase in multifamily construction. Much of that new construction will be coming on the market in early 2015. This is just in time to meet the increasing demand from younger people that are only now becoming financially capable of setting up their first homes.
People below the age of 25 have had a particularly difficult time finding employment. While that's improving today, the number of employed young people remains half of what it was prerecession. As more of these people become employed, they will be striking out on their own for the first time. These people will keep the vacancy rate low and although rents are expected to continue increasing, they'll do so at a slower rate due to the new construction coming online.
The number of vacant single houses is still significantly above what it was before the recession. The banks have been holding back foreclosure inventory to avoid further slumping the market. That fact and the fact that more owner occupied houses will be coming on the market will keep new home construction at a slow pace.
2015 will see the housing market continue returning to long term patterns. Markets that last decade went through a boom-bust-rebound cycle will level off in 2015. The markets that were the slowest to recover will see further declines in foreclosure inventories and will move closer to what we consider normal.
In 2015, if the economy continues delivering strong job growth that spins off into big income gains, 2016 could be the long awaited year that sees major growth in homeownership and single-family construction.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.